Greece's unofficial economy

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The World's Gerry Hadden explores Greece unofficial economy and what the government is doing to put an end to it.

MARCO WERMAN: One way Greece hopes to climb out of the red is by improving its dysfunctional tax system. The government loses billions of dollars a year to tax evasion. Greek tax payers are old pros when it comes to hiding their assets and keeping transactions under the table. The Greek government has vowed to recoup more than a billion dollars this year as it gets tough on tax cheats. But tax dodging is a way of life in Greece and stopping it will take years as we hear in this report from The World's Gerry Hadden in Athens.

GERRY HADDEN: All countries battle fraud in the public and private sectors, but it's the petty corruption that abounds in Greece. Its part of the fabric of everyday life and it has a name. Fakellaki means little envelope. Athens resident Afinal Londu has just come from a visit to the doctor. She says even a routine appointment can involve a little fakellaki. She says you take a little envelope and you put a little bit of money in it, then you give that little envelope to your doctor and he'll see you on the spot. You want to see a doc right away, says Athenian Zelko Biakos, you pay the fakellaki. If you don't mind waiting a month, no problem either. Forget the fakellaki. The same holds if you don't mind waiting a month, say for the plumber to fix your blocked toilet or waiting a month to get your driver's license renewed. Many Greeks say the little envelope is a necessity. But Kostas Bakouris says it's also a problem. Bakouris heads the Greek branch of Transparency International, which studies global corruption. He points out that each little envelope contains money that never gets taxed.

KOSTAS BAKOURIS: We used to say around one third of our gross national product is not declared. Last research I saw from some economists, they came up with the number of about 37%. That would mean that between 80 to 100 billion Euro are not declared. Of course if you extrapolate from that, say 20% for income tax and added value tax, then we would have anywhere between 18 and 20 billion Euro in the coffers of the government which are not there now.

HADDEN: That's about 25 billion dollars. It would be enough to cover what Greece must pay next week when it's next round of bonds mature. Instead, Greece must pay that bill with an unprecedented emergency loan from the European Union and the international monetary fund. In return for the rescue, Greece has had to slash public spending. The government has also raised the sales tax to 23% on common goods like gasoline and that's led to social unrest. The Greek government knows that the austerity measures are unpopular and that more protests are coming. To recoup some public support, along with money, Greek leaders have pledged to revamp the tax system to ensure that everyone pays. Some of it is basic stuff. This taxi driver says he's never had to declare what he actually earns. That's because the tax authority is too weak to audit cab drivers effectively, so it's just told them all to declare the same income, about $15,000.00 a year. Such a lack of supervision invites abuse. But this driver says those days are over as he hands his passenger something new, an official receipt. He complains about the paperwork and having to pay $70.00 to an accountant, but he says he's willing to do his part to save his country. But not everyone is so civic minded. Greek tax collectors recently surveyed some of the rich suburbs north of Athens. About 400 households in these neighborhoods admit owning a swimming pool. The tax collectors check that out for themselves by helicopter. They counted 16,000 pools and Greek authorities use assets to calculate income tax for the rich. If you own a pool, a fancy car, you pay more. At this luxury car dealership in Athens, owner Constantina Florapulo says business is falling off because tax authorities have started looking over her client lists. Since then, she says, everybody wants to get rid of their expensive cars. Our clients are against this crackdown. They feel wronged, especially because the tax authorities themselves have been known to cheat, offering kick backs in exchange for favorable inspections and implying trouble for those who refuse to pay. For The World, I'm Gerry Hadden in Athens.